Hornung: Think twice about DIY home sales

A FSBO can leave enough money on the table to pay for a year of college.

Lane Hornung

Well-priced homes in many markets are selling faster than ever.

For months, it has not been unusual for some homes to receive multiple offers, as prospective buyers fight over a property.

In a market like this, many homeowners may ask themselves: “Why do I need a broker? If homes are practically selling themselves, why not become a for-sale-by-owner, or FSBO?”

Whether or not a homeowner should go it alone is the topic of this month’s question and answer session between Lane Hornung, founder and CEO of 8z Real Estate and John Rebchook of InsideRealEstateNews.com.

John: Should a homeowner just say no to being a FSBO?

Lane: I am not one who thinks that FSBO is a four-letter word. I do think a certain group of folks are do-it-yourselfers. For the segment of the population who want to put up with the pain and hassle of selling their house on their own, and are more concerned with saving money than making money, going the FSBO route might make sense.

John: Yet, most people still use a broker. Why?

Lane: Most people aren’t experts and realize they’re not experts. And for many, they are selling their single largest asset. That is why 80 to 85 percent of all homeowners use an agent.

John: What should be the goal?

Lane: Well if a seller’s goal is to just sell their house, whether going FSBO or working with an agent, they are setting the bar way too low.
The goal should be to maximize the sales price. A good agent will greatly improve your odds of accomplishing that. In a hot market in particular, if you have an agent who does everything right, huge gains to the upside are possible.

John: What are some of the problems that FSBOs face?

Lane: Pricing is the No. 1 thing. Especially in a hot market, where prices are moving quickly, they may wildly underprice the home.
Or, they may grossly overprice it and they don’t get any action. They tend to chase the market and miss the opportunity when the property first comes on the market and demand is highest.

I think some people think that a sellers’ market is the best time to go it alone. I think that is the time when you most want to work with a good Realtor. The possible gains to the upside more than pay the agent’s commission and leave a larger profit for the seller when all the dust settles.

John: What if a FSBO prices it right?

Lane: In that case, in a hot market like this one, the owner very likely will get multiple offers.
That might sound great, but talk to any seller in that position and they will likely tell you it’s extremely stressful. It really helps to have a Realtor who has been through bidding wars to help guide a seller and make the right moves to maximize price.

Handling this well could pay for a kid’s college education, or at least a semester or two.

John: Some people think they will save the 6 percent commission. Do they really?

Lane: The reality is that they will usually pay the co-op commission to the buy side, which is typically 2.8 percent or 3 percent on a 6 percent commission.
So you might save about 50 percent of the commission. A good broker can make you far more than 3 percent or 6 percent of the sales price.

John: What will a good broker do to earn his or her commission?

Lane: A good broker will merchandise your home in a way to maximize the sales price. It’s not just a matter of putting a sign in the ground and taking some photos.
It’s everything. It is really getting the house in an almost unnatural showroom state, so it truly is a 10 out of 10.
Most people can’t do that because they can’t step back and look at their home objectively. They need an agent there to help make the tough decisions.

You don’t want a sale to collapse because there isn’t a Realtor looking out for the interest of the seller. And you certainly don’t want to be sued later, because you neglected to make a disclosure when you sold the house.

John: Have you seen any recent examples of what happens with a seller that didn’t use a Realtor?

Lane: This is a true story. This is not a made up story.

A neighbor of an 8z broker, whose name happens to be John, told him that someone knocked on the neighbor’s door and said he wanted to buy her house. “So I sold my home,” she said.
The neighbor shared that she was offered $425,000. John choked a little and told his neighbor he thought she was leaving quite a bit of money on the table. When the neighbor asked how much, the 8z broker said as much as $100,000.John: What happened?

Lane: Luckily, the original contract fell apart and the neighbor decided she wasn’t going to go through the hassle of selling it herself. So she hired John.

Guess how much John sold it for? $525,000. The neighbor’s net increased by over $70,000 and she didn’t have to go through all of the stress of doing it herself.

“Handling this well could pay for a kid’s college education, or at least a semester or two”

This statement is very subjective. What is not debatable is, paying an agent 6% comission on a $450,000 house is $27,000. Since tuition at CU Boulder is $8,000 per year, you can pay for 3 year’s tuition the real estate agent’s kid. The good is, the agent will still have $3,000 to provide beer money for the kid.

“Lane: The reality is that they will usually pay the co-op commission to the buy side, which is typically 2.8 percent or 3 percent on a 6 percent commission”

Not true, the buyer pays this in reality. Whether they know it or not. If the seller agrees to take $400,000 for a house w/$12k to a buyer’s agent they would have taken $388k without the agent. Yes buyer, you just paid the fee and most likely financed it for 30 years.

Don’t give me the agent won’t show the house argument. If you are acting as a Buyer Broker, and don’t show the house because of commission being paid, you are in violation of your fiduciary duty and can be disciplined by DORA and sued by your client. Buyers: beware of any agent making you sign away these rights in a buyer agency agreement.